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If you’re not a legal expert, you might be surprised by how many rules, regulations and laws you might break during the operation of your business without even knowing it. One way to avoid running afoul of local, state and federal agencies is to work with an attorney to determine your obligations and then put rules and regulations in place that your employees and contractors must follow to keep you compliant. Adding corporate governance procedures will help you stay out of hot water while you focus on your money-making concerns.

Corporate Governance

Corporate governance is often associated with public companies, but small businesses can also benefit from this practice. Corporate governance consists of rules that direct the roles and actions of key people rather than processes. Unlike simple policies and procedures, such as a dress code or expense reimbursement procedure, corporate governance rules focus on creating better management and fewer ethical or legal problems. Examples of corporate governance include setting rules for using business funds for personal use; serving on a board of directors; hiring family members; conflicts of interest; notifying owners, investors and partners of key meetings and decisions; and disbursing profits.

Improved Reputation

A corporate governance program can boost your company's reputation. If you publicize your corporate governance policies and detail how they work, more stakeholders will be willing to work with you. This can include lenders who see you have strong fiscal policies and internal controls, charities you might partner with to promote your business, government agencies, employees, the media, vendors and suppliers. The practice of sharing internal information with key stakeholders is known as transparency, which allows people to feel more confident you have little or nothing to hide.

Fewer Fines, Penalties, Lawsuits

Corporate governance includes instituting policies that require the company to take specific steps to stay compliant with local, state and federal rules, regulations and laws. For example, as part of corporate governance, an executive management team or board of directors might conduct a review of the company’s hiring practices if it falls under the guidelines of the Equal Opportunity Employment Commission. You might require that your accounting department undergo an external audit by an independent auditor every quarter or year.

Decreased Conflicts and Fraud

Corporate governance limits the potential for bad behavior of employees by instituting rules to reduce potential fraud and conflict of interest. For example, the company might draft a conflict of interest statement that top executives must sign, requiring them to disclose and avoid potential conflicts, such as awarding contracts to family members or contracts in which an executive has an ownership interest. The company might forbid loans to officers and family members or the hiring of family members. External audits or requiring checks over a certain amount to be approved and signed by two people help reduce errors and fraud.

About the Author

Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.